FDIC's list of 'problem' banks swells to 171

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The 171 banks on the FDIC's "problem list" encompass only about 2 percent of the nearly 8,500 FDIC-insured institutions. Still, the increase from 117 in the second quarter is sharp, and the current tally is the highest since late 1995.

"We've had profound problems in our financial markets that are taking a rising toll on the real economy," said FDIC Chairman Sheila Bair in a statement, adding that Tuesday's report "reflects these challenges."

Banks across the country have been hurt and in some cases, devastated by the collapse of the subprime mortgage market and subsequent problems across the lending spectrum. As the FDIC report shows, the number of hobbled institutions is rising at a quickening pace, a trend that has already begun to reshape the banking industry.

The FDIC said total assets held by troubled institutions climbed from $78.3 billion to $115.6 billion a figure that suggests that the nation's top 20 banks aren't on the list, even though they are getting slammed, too, by the growing credit crisis. The FDIC does not reveal the names of the institutions it deems troubled.

Bert Ely, a banking consultant based in Alexandria, Va., pointed out that the assets held by problem banks represent less than 1 percent of those held by all U.S. banks. "We're still talking about a fairly small portion of the industry," he said.

And on average, only about 13 percent of institutions on the FDIC's list end up failing.

Still, banks that don't make the list can end up collapsing anyway the two biggest bank failures over the past year, Washington Mutual Inc. and IndyMac Bancorp, had not been on the FDIC's list of troubled banks. Wachovia Corp., which nearly failed before it got bought by Wells Fargo & Co. in October, had not been on the list, either.

Nine banks failed in the third quarter, decreasing the FDIC's deposit insurance fund to $34.6 billion from $45.2 billion in the second quarter. This quarter, the pace appears to be picking up nine banks have already failed since Sept. 30, including Downey Savings and Loan Association, based in Newport Beach, Calif.

"To some extent, a bank failure is a regulatory failure," Ely said. Regulators, if they address bank problems early on, can convince a troubled bank to sell off assets, raise capital or find a buyer, he said. "My hope is they're moving faster on these problems."

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